Federal Reserve Chairman Jerome Powell.
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For the first time in years, Americans are facing a period of rapidly rising interest rates.
Fed Wednesday Minutes of the most recent meeting published, indicating the central bank plans to raise interest rates by 50 basis points this year, possibly at every meeting remaining on the calendar. The Fed could also raise rates more than the market is currently expecting in an effort to keep inflation in check.
The minutes came from the central bank’s meeting in early May base rate half a point.
With interest rates rising, financial experts are advising consumers to make some key money moves to put themselves in a better financial position. Those measures broadly include paying down debt and propping up personal budgets to fend off any sudden shock to the economy.
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“If your New Year’s resolution is to build a family budget, then it may need to be revisited and reviewed,” said Cathy Schaeffer, certified financial planner, vice president and manager of family counseling, Baker Boyer, Walla Walla, Wash. Schaeffer) said. Now is “an opportunity to really look at your personal budget and identify some ways to pay down debt more aggressively as these rate hikes are expected to continue.”
Certain borrowers should be especially careful right now.
This includes anyone looking to buy a home, yes buy a car Or running into credit card debt, according to CFP Lauren Anastasio, head of financial consulting at Stash.
“If you’re buying a home, you might want to ask your lender if they can lock in your interest rate right now,” she said. “Sometimes lenders will lock you in today’s rate for a flat fee even if you don’t plan to close in the next few months.”
some borrowers are Consider an Adjustable Rate Mortgageit offers a lower initial interest rate, but eventually Back to market conditions. Those who own an ARM and are ending that period may want to consider refinancing at a fixed rate.
Car buyers may want to stick with newer models and steer clear of the used-car market where prices have risen the most. It is also in your best interest to take the time to buy the best price you can find.
“There’s still a lot of value out there,” said Jacqui Kearns, chief brand and strategy officer at Affinity Federal Credit Union in New Jersey, adding that while interest rates are rising, they’re still historically low.
People with credit card debt may also want to contact their lenders to see if they can come to an agreement.
“I always advise people to call their lenders to see if they can lower their rates,” Anastasio said.
It may also make sense to consolidate credit card debt into fixed-rate debt, since this type of debt is most sensitive to interest rate hikes and often has the highest interest rates. According to LendingTree, the current average interest rate on new credit cards is close to 20%.
It’s also a good idea to pay off your debt completely, if possible. Kearns recommends dealing with cards with relatively low balances.
“If you have $200 or $300 [debt] There, just pay it off,” she said.
prepare for the future
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Paying off debt is just one way to set yourself up for future financial success, which is especially important when people weigh the risk of a recession.
“It’s a very delicate dance the Fed is doing,” Anastasio said, adding that while the central bank will do its best to keep inflation in check without shutting down the economy too much, there are still many factors that won’t work control, such as uncertainty stemming from ukraine war.
Financial experts recommend taking the time now to review your spending and savings to strike a solid balance.
“Spend your money wisely,” Kearns said. This could mean reducing discretionary purchases or increasing your budget for items that have gone up in price. Americans should also make sure they have ample emergency savings to deal with rising prices.
As people plan for future spending, such as upcoming vacations, they may also want to budget more than usual, Anastasio said.
“The reality is that we may see the rapid rise in costs waning, but that doesn’t necessarily mean that when I go to the grocery store and buy baby formula, the manufacturer suddenly reverts to the same. It started charging two years ago, “she says.
ask for help
To be sure, there are some benefits to rising interest rates. Over time, savers may start to see higher interest rates on savings accounts, Schaeffer said. Investors also have an opportunity to profit from market volatility, Kearns said.
“If you’re interested, now is a good time to invest,” Kearns said. “Literally, if you stay in the volatility we’re seeing for a long time, you can get a lot of value for just a few dollars a day.”
Those struggling to manage their money or stressed by the current environment may want to seek professional help with better budgeting or future planning.
“Now is the right time to take a hard look at your goals, risk tolerance and financial plan,” Shaffer said, adding that this is especially important for those in transition, such as nearing retirement or preparing to send their kids to college .
“Have a plan and work with someone to develop that plan,” Kearns said, adding that there are many resources spanning price points from digital tools, platforms, to face-to-face advisors.
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